Finance glossary
Volatility
Also known as: Market volatility
In simple terms
Volatility is how much and how quickly an investment’s value goes up and down. A “volatile” investment can swing sharply in a short time, while a calmer one moves more gently.
On this page
What does volatility mean?
Volatility describes the size and speed of the ups and downs in an investment’s value. High volatility means big, frequent swings; low volatility means steadier, smaller movements. It is often used as a rough measure of risk.
A more volatile investment is not necessarily a bad one — but it means the value can move a long way in either direction, and can fall sharply just as easily as it rises.
How volatility works
Prices move as buyers and sellers react to company news, interest rates, the economy and wider events. Shares in a single company are usually more volatile than a broad fund, because a fund spreads money across many holdings that do not all move together.
Over short periods, volatility can be alarming; over long periods, markets have historically tended to recover from falls, though this is never guaranteed. Selling in a panic during a dip can turn a temporary paper loss into a real one.
How could this affect me?
If you may need your money soon, high volatility is a real risk — the value could be down at the exact moment you want to cash in. Investing is generally suited to money you can leave untouched for at least five years, so short-term swings have time to even out.
Understanding volatility helps you pick investments you can hold through the rough patches without panic-selling. Spreading money across different types of investment can reduce how sharply your overall portfolio swings.
Things to watch out for
- High volatility means the value can fall fast, not just rise — your capital is at risk.
- Selling during a dip locks in a loss you might otherwise have recovered from.
- A calm past does not guarantee a calm future — markets can turn quickly.
- Past performance and past stability are not a guide to future returns.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- FCA, Investing basics — risk and volatility (opens in a new tab). Accessed 22 Aug 2026.
- MoneyHelper, The risks and rewards of investing (opens in a new tab). Accessed 22 Aug 2026.